Fixed-Price Contracts for Electricity in Ontario
Door-to-Door Sellers of Power Overcharge Consumers
Apr 3, 2009
Residents of Ontario are frequently visited by representatives of energy retailers selling fixed-price electricity contracts. Residents should not be taken in by a slick, forceful sales pitch. According to the CBC Marketplace TV show, everyone who bought a fixed-price contract has paid more for electricity than if they had remained as they were.
The retailers claim they are merely trying to "protect" residents from price increases to alarm residents into buying a contract. Some door-to-door salespeople are selling falsely.
Electricity Price Is Controlled
What they omit to mention is that for residents, the Ontario Provincial Government controls the price for electricity under the Regulated Price Plan (RPP) through the Ontario Energy Board (OEB). The government does this to protect residential electricity consumers against steep price increases and to reflect variations, both up and down, in the cost of generating electricity:
- The price for electricity rose on November 1, 2008.
- It fell on November 1, 2007.
Electricity Rates
Electricity is charged per kilowatt-hour (kWh). A kilowatt is 1000 Watts. A 100-W light bulb lit for 10 hours consumes 1 kWh.
The price for electricity in Ontario increases as a consumer's use increases above a threshold. The threshold is 600 kWh per month in summer and 1000 kWh per month in winter, to reflect the greater winter need.
As of November 1, 2008, to April 30, 2009, the price for electricity is as follows:
- For consumption up to 1000 kWh per month: 5.6 cents per kWh
- For consumption above 1000 kWh per month: 6.5 cents per kWh.
On November 1, 2008, the price below the threshold increased by 12%, from 5.0 to 5.6 cents per kWh. The price for consumption above the threshold increased by 10%, from 5.9 to 6.5 cents.
Although this was a substantial rise in 2008, the price fell by 4.8% in 2007.
Rates are reviewed semi-annually; rates for May 1, 2009, were soon to be announced when this article was written.
Costs of Electricity Generation
The cost of generating electricity depends on the price of fuel and the cost of operating nuclear, hydro and fossil-fuel generating stations. In 2006 to 2007, the price of natural gas fell, enabling the OEB to lower the price. Given the current decline in natural gas prices shown by the Energy Shop, it is possible OEB rates will fall for 2009.
Other Charges on Electricity Bill
There are other charges on the electricity bill:
- An adjustment factor: this compensates for natural loss of power in transmission.
- Transmission: Hydro One’s charge to transmit power from generating stations to local utilities.
- Distribution: charged by local utilities to distribute power to residences and buildings.
- "Debt recovery": payment of debts on the books of the old Ontario Hydro when the generation of electricity was "privatized" (see below).
The OEB regulates these additional costs. The price charged by retailers does not include these charges. They will still turn up on a bill from the retailer.
Privatized Electricity
Until several years ago, electricity in Ontario was generated and transmitted by only Ontario Hydro, and the price was frozen. Since then, the government allowed competitive corporations to generate electricity, and Ontario Hydro was reorganized into the Ontario Power Corporation, which generates electricity, and Hydro One, which operates the transmission grid.
The government introduced price controls for residential users, as well as municipalities, educational establishments, health-care and small businesses. Rates for large commercial and industrial users are not controlled. Retailers do help these users make large savings.
A False Claim On Electricity
The retailers charge for only electricity. Retailers' charges have always been higher than the OEB price. Under their contracts, the price is fixed for usually a term of several years. The OEB price has never risen such that the consumer on a retailer's contract has saved money.
At least one retailer claims that consumers will get a credit from the OEB if they switch to the retailer. This is misleading because it is only partly true. If the cost of generation has fallen during the year, a consumer who ceases to buy electricity under the OEB's Regulated Price Plan for any reason -- such as switching to a retailer or leaving the province – will gain a credit. (If the rate falls, as in 2007, the consumer doesn't need the retailer's "protection" against rate increases.)
If the cost of generation has risen, the consumer receives a bill. The retailer in question says the credit is not paid to people who remain with the OEB. This is not true. The credit is accounted for in the adjustment of the rate for the following year.
The bottom-line advice for consumers:
- Stick with the OEB
- Don't show your hydro bill to any sales person at the door
- Check the retailer's rate against that of the OEB on your bill – the electricity cost only, not transmission, distribution or debt retirement
- Don't be fooled by claims about a credit
- If you buy from a retailer, you will almost certainly pay more
For information go to the OEB.
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